Current Trends in Mergers and Acquisitions

In 2021, global mergers and acquisition (M&A) activity surpassed the levels seen during the pre-COVID-19 pandemic period to almost match the highs of 2007 and 2015. Amid a recovering global economy, low interest rates, and easy access to capital, in 2021, deal makers announced $5.1 trillion worth of M&A transactions. This was up from $3.8 trillion recorded in 2020.

The US mergers and acquisitions market was unprecedented in 2021. A record $2.9 trillion worth of transactions were sealed, marking a 55 percent rise from the $1.9 trillion recorded in 2020. That accounts for nearly 60 percent of all global deals, up from less than 50 percent seen in 2020.

All over the world, corporate sector operations are undergoing restructuring as players increasingly adopt consolidation strategies like mergers and acquisitions to cope with the challenges posed by the new globalization patterns and market shifts. For example, over the last two decades, cross-border M&As sharply increased. Partly, this is due to government policies, financial liberalization policies, and regional agreements.

In the United States and Europe, for instance, there is heightened sensitivity toward the role of big tech companies. Some regulators have taken more aggressive positions, even stopping certain deals. In the United Kingdom, following Brexit, the country’s competition-regulating agency, the Competition and Markets Authority, now enjoys greater independent authority in deal oversight. Although megadeals across the globe will continue, certain sectors may face bigger hurdles than others.

With the electrification of vehicles in the United States and the country investing heavily in infrastructure to support this development, battery technology is likely to be the next hotbed of M&A activity. This is a technology space that might increasingly come under the eye of regulators. Only time will tell what that might also mean for other sectors, but those looking to pursue large deals need to factor that into their long-term plans.

Although deals are generally expected to continue to proliferate, regulatory scrutiny of mergers and acquisitions in the United States has intensified, with several government bodies taking a more active role. This may impact the level of activity in specific areas that are coming increasingly under scrutiny by government agencies. For instance, the Department of Justice and Federal Trade Commission look at M&A deals to ensure that they don’t flout antitrust laws.

The Securities and Exchange Commission watches special purpose acquisition companies (SPACs) and their acquisition targets, while the Committee on Foreign Investment in the United States closely monitors Chinese investments in local companies. This trend in the regulatory environment has led to a significant decrease in SPAC initial public offerings, horizontal and vertical mergers, and Chinese investment.

And it’s not just the regulatory environment that is changing. In private mergers and acquisitions, representations and warranties insurance has become common as players seek to reduce post-closing indemnification claims and also maximize upfront value to sellers. As M&A activity continues to rise, this is a trend that is also expected to gain more traction. For buyers, post-closing indemnification warranties insurance can help recoup lost value due to misrepresentations by a seller concerning the acquired asset or company. For sellers, representations and warranties insurance can lead to huge liability costs after the acquisition has closed.

A concept that is gaining much attention among investors across all business sectors including M&As is environmental, social, and governance (ESG). Private investment funds and companies are increasingly under pressure from investors to increase their focus on ESG matters. This includes tracking ESG-related data about targeted acquisitions and sources of funding and scrutinizing their ESG goals.

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Ben Pike

A New York, New York-based private equity investor and executive, Ben Pike serves as a Principal at Ares Management.